Business Secretary Vince Cable has asked company directors and shareholders to tell him how the law should prevent takeovers which damage British industry, such as the sale of Cadbury.

But he was accused of toning down his opposition to damaging takeovers - because of pressure from Downing Street.

Birmingham MP Jack Dromey (Lab Erdington), who has campaigned for a “Cadbury Law” to protect British industry, said he believed David Cameron had ordered Dr Cable to scrap some of his proposed reforms.

The Business Secretary announced he was calling on directors and investors to contribute their views to an inquiry looking at takeovers and salaries.

It will consider whether shareholders and investors focus too much on short-term profit rather than the long-term health of businesses.

The inquiry was prompted by concern that the sale of Birmingham chocolate-maker Cadbury to American firm Kraft earlier this year was pushed through by hedge funds which bought shares in the Bournville firm to make a quick profit out of the sale.

Dr Cable said: “We need to ask ourselves what are the factors influencing short-term decisions, the reasons for the growth of directors’ pay and why economically damaging takeovers still take place?

“I recognise that the best solutions will come from businesses and that regulation is not the only option. That is why today I am calling on all companies and individuals to put forward their ideas.”

But his comments were mild compared to the speech he made at the Liberal Democrat party conference in September, when he said: “Why should good companies be destroyed by short term investors looking for a speculative killing, while their accomplices in the City make fat fees?”

And there was no mention of the tough measures Dr Cable has proposed in the past, which included making businesses pay huge fees to take over large companies, and making the whole process take longer so that there is more time for the Takeover Panel to scrutinise proposed sales.

Mr Dromey said: “There has been a disagreement between Number 10 and the Department for Business, Innovation and Skills over this review.

“Holding yet another consultation will go nowhere. What we need is firm action now to stop the hedge funds doing what they did with Cadbury - buying up 31 per cent of the shares to make a quick killing by selling the national interest short.”